2015 (12) TMI 367 - AT - Income Tax

Computation of income as FTS (Fees for Technical Services) - Assessment of income - whether the income of the assessee is taxable u/s 44BB of the Act, or is u/s 44DA as held by the AO - Held that - For the relevant assessment year i.e. AY 2010-11 the assessee is entitled to declare its income under the provision of section 44BB of the Act. The next question whether the Amendment in section 44BB and 44DA should be read as retrospective is also no longer Res-Integra as pointed out by the Ld. AR. In B J service company middle East Ltd vs DCIT 2011 (8) TMI 477 - UTTARAKHAND HIGH COURT has held as under 55. As stated earlier, the combined effect of the provisions of s. 44BB, 44DA and 115A of the Act will not have a bearing to the cases in hand in as much as the Explanatory Note to the Finance Bill, 2010 clearly indicates that the amendments proposed in s. 44BB and 44DA of the Act would take effect from 1st April, 2011 and would apply in relation to the asst. yr. 2011-12 and subsequent years. The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years. Thus the question of retrospectivty cannot be accepted and is being repelled and so this ground of Revenue fails.

Issues Involved:
1. Taxability of income under Section 44BB vs. Section 44DA.
2. Nature of services as Fee for Technical Services (FTS).
3. Retrospective application of amendments in Finance Bill 2010.
4. Interpretation of legislative intent behind Sections 9(1)(vii), 44BB, and 44DA.
5. Applicability of Section 44BB to second-leg contracts.
6. Precedential value of Supreme Court's decision in ONGC v. CIT.
7. Interest under Section 234B.

Detailed Analysis:

1. Taxability of Income Under Section 44BB vs. Section 44DA:
The primary issue is whether the income derived by the assessee from contracts with ONGC and Petrogas E&P LLC should be taxed under Section 44BB, which pertains to the business of providing services or facilities in connection with the prospecting for, or extraction or production of, mineral oils, or under Section 44DA, which deals with income by way of royalties or fees for technical services (FTS).

The Assessing Officer (AO) argued that the income should be taxed under Section 44DA as FTS, given the nature of services rendered. However, the Commissioner of Income-tax (Appeals) [CIT(A)] and the Tribunal found that the services provided by the assessee, including geophysical seismic surveys and data acquisition, are covered under Section 44BB. The Tribunal upheld the CIT(A)'s decision, emphasizing that the contracts' primary purpose was directly associated with the prospecting for, extraction, or production of mineral oil.

2. Nature of Services as Fee for Technical Services (FTS):
The AO classified the services rendered by the assessee as FTS under Section 9(1)(vii), arguing that the services provided were technical in nature. The Tribunal, however, supported the CIT(A)'s view that the services were integral to the oil and gas exploration industry and thus fell under Section 44BB. The Tribunal noted that the scope of work and technical specifications in the contracts clearly indicated that the services were related to the acquisition and processing of seismic data, which is essential for oil and gas exploration.

3. Retrospective Application of Amendments in Finance Bill 2010:
The AO contended that the amendments introduced in the Finance Bill 2010, which clarified the applicability of Sections 44BB and 44DA, should be applied retrospectively. The Tribunal rejected this argument, citing the decision of the Hon'ble Uttarakhand High Court in BJ Services Company Middle East Limited vs. DCIT, which held that the amendments were prospective and applicable from April 1, 2011, onwards. The Tribunal affirmed that the amendments could not be applied retrospectively to the assessment year in question (2010-11).

4. Interpretation of Legislative Intent Behind Sections 9(1)(vii), 44BB, and 44DA:
The Tribunal examined the legislative intent behind these sections and concluded that Section 44BB was specifically designed to cover services related to the oil and gas industry. The Tribunal noted that the legislative intent was to provide a simplified taxation regime for non-residents providing services in connection with the exploration and extraction of mineral oils. The Tribunal also referred to the Supreme Court's decision in ONGC v. CIT, which supported the view that payments for services directly associated with the extraction or production of mineral oil should be taxed under Section 44BB.

5. Applicability of Section 44BB to Second-Leg Contracts:
The Tribunal addressed the argument that Section 44BB should not apply to second-leg contracts (sub-contracts). The Tribunal cited the decision in SBS Marine Limited vs. ADIT, which held that Section 44BB does not distinguish between main contractors and sub-contractors. The Tribunal concluded that the benefit of Section 44BB should extend to sub-contractors providing services or facilities used in the prospecting for, or extraction or production of, mineral oils.

6. Precedential Value of Supreme Court's Decision in ONGC v. CIT:
The Tribunal acknowledged the Supreme Court's decision in ONGC v. CIT, which held that services directly associated with the prospecting, extraction, or production of mineral oil should be taxed under Section 44BB. The Tribunal emphasized that this decision, despite being based on earlier assessment years, provided a clear interpretation of the legislative intent and supported the application of Section 44BB to the assessee's income.

7. Interest Under Section 234B:
The AO charged interest under Section 234B for non-payment of advance tax. The Tribunal, however, noted that the liability to deduct tax at source lies with the payer, not the payee. Citing the decision in Director of Income-tax v. Jacobs Civil Incorporated/ Mitsubishi Corporation, the Tribunal held that the assessee could not be held liable for interest under Section 234B if the payer failed to deduct tax at source.

Conclusion:
The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decision that the assessee's income should be taxed under Section 44BB. The Tribunal also rejected the retrospective application of the Finance Bill 2010 amendments and affirmed that the services provided by the assessee were integral to the oil and gas exploration industry, thus falling under Section 44BB. The Tribunal dismissed the cross-objection filed by the assessee, which was not pressed during the hearing.

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